A&F’s
debt capacity analysis includes an examination of existing Commonwealth debt
service and contract assistance payment obligations. The analysis includes
only the interest payments on federal grant anticipation notes (GANs); principal payments are made with grants
from the Federal Highway Administration that are legally dedicated to such
purpose and are not available for general budgeting purposes. Special
obligation bonds secured by gas tax receipts are included in the analysis.
Special obligation bonds for the Massachusetts Convention Center Authority are
not included; although these bonds are obligations of the Commonwealth, they
are secured and paid directly by a pledge of dedicated tax and excise revenues
related to the convention center projects financed with proceeds of the bonds.
Massachusetts Bay Transportation Authority (MBTA) and Massachusetts School
Building Authority (MSBA) bonds are also not included because they are
obligations of the respective authorities, and, although secured in part by a
portion of the Commonwealth’s sales tax revenues, the Commonwealth is not
liable for such bonds and such sales tax revenues are legally dedicated to the MBTA
and MSBA. The revenues legally dedicated for the convention center bonds and
for the MBTA and MSBA bonds are not available for general budgetary purposes
and are consequently not included in the budgeted revenue figures taken into
account in this analysis.

The Commonwealth’s existing direct debt service
obligations for fiscal years 2010 through 2015 are presented in the following
table.

As part of the comprehensive plan to address fiscal
year 2011 budgetary challenges, the Commonwealth authorized a refinancing of up
to $300 million of the $1.02 billion in principal due in fiscal year 2011. The
Administration has already refinanced $200 million of this authorized amount, primarily
to smooth an unusual spike in debt service. The remaining $100 million of
restructuring debt was also issued, but it will only be applied to restructure
debt later in the fall to the extent necessary based on tax revenue
performance. If deemed not to be necessary for budgetary reasons, the $100
million will be applied to fund authorized capital projects. This analysis
assumes the full $300 million in debt restructuring, the impact of which is
shown in the following table.

Table 1aImpact of Fiscal Year 2011 Debt Restructuring($000s)

Fiscal Year

Refunded Debt Service

Refunding Debt Service

Savings

2010

0

0

0

2011

308,563

3,567

304,996

2012

0

10,578

-10,578

2013

0

10,578

-10,578

2014

0

101,143

-101,143

2015

0

101,099

-101,099

2016

0

101,125

-101,125

Table
1b adjusts the General Obligations Existing Debt Service Obligations by
reducing fiscal year 2011 debt service and increasing fiscal year 2012 through
2015 by the amount of the debt service reflected in the “Savings” column,
above.

Contract
assistance obligations, including certain capital lease obligations that relate
to major capital projects, were also included in the examination of existing
Commonwealth obligations.[13] These
obligations for fiscal years 2010 – 2015 are presented in the following table.

Exhibit
A to this Debt Affordability Analysis lists the line items in the General
Appropriations Act that provide for the debt service and contract assistance
payment liabilities described above. It should be noted that the appropriated
amounts may not match the amounts reflected in this Debt Affordability Analysis
due to more conservative assumptions in this analysis with respect to the
timing of bond issues and the resulting impact on fiscal year budgets and
different assumptions regarding interest rates.

Footnotes:

[13] The analysis includes major capital
lease obligations, such as lease payments that support the Route 3 North
Transportation Improvements Association, the Plymouth County Correctional
Facilities Corporation, and the Saltonstall Building Redevelopment Corporation
Project, all of which are large-scale capital projects that were funded outside
of the bond cap by prior administrations. For the Massachusetts Department of
Transportation as successor to the Massachusetts Turnpike Authority, the
contract assistance payment obligations reflect an increase of $100 million
annually beginning in fiscal year 2010 pursuant to comprehensive transportation
reform legislation. Contract assistance for infrastructure development related
bonds issued by Massachusetts Development Finance Agency (MassDevelopment) are
not included in this analysis as they are expected to be fully reimbursed by
incremental state tax revenues resulting from the development or other sources
(see Table 6). Minor capital costs, such as equipment lease purchases made by state
agencies, are funded through their respective operating budgets and are not
part of the state’s capital budget and, accordingly, are not included in this
analysis.